Stakes raised in pounds 650m Lloyds Chemists battle

MAGNUS GRIMOND

The pounds 650m battle for Lloyds Chemists entered its final stage yesterday after Gehe of Germany raised its offer to 500p a share and a surprise market raid by rival bidders UniChem took its stake in Lloyds to nearly 10 per cent.

With UniChem's cash and shares bid valuing Lloyds' shares at 491p, shareholders are now faced with roughly competing bids, one in cash and one involving paper. Lloyds ended 2p ahead at 491p, with UniChem adding 7p to 249p.

Allen Lloyd, the company chairman, will receive pounds 45.6m under the revised Gehe bid terms.

Describing the raised offer as "more than generous", Gehe's chairman Dieter Kammerer drew attention to what he claimed were "the potential risks that UniChem faces in integrating a group significantly larger than itself."

Gehe also claimed that UniChem's latest bid would reduce earnings per share by 10 per cent, cut its asset backing by more than half and suggested that the company had reversed its previous stance and was now contemplating the sale of the Holland & Barrett health food chain.

These claims were rejected by Jeffery Harris, the UniChem chief executive, who said: "Having seen the reaction [of the shares] this morning, I believe we are going on to win this." He said his shareholders understood that the company had frequently to deplete asset backing by writing off goodwill on the acquisition of pharmacy licences. He dismissed talk of selling Holland & Barrett as "absolute bunkum". "We would sell if we got a good enough offer, but not merely to raise cash."

UniChem picked up 10.6m Lloyds shares yesterday - taking its stake to around 9.9 per cent at a cost of around pounds 60m - in what was seen as a potentially risky move by some observers. The competing bids are still being considered by regulation authorities in London and Brussels. With the Department of Health rumoured to have concerns about potential consolidation of the drugs market with a Lloyds takeover, UniChem could face a substantial loss on its stake if the bid is blocked.

Lloyds, which had previously withdrawn its support for the original Gehe bid, was yesterday sitting on its hands. A spokesman for its merchant bank, Samuel Montagu, said: "We intend to wait a few days and see how the market settles down and reacts and then make a recommendation."

Analysts were divided about which way the bid would go. Many pointed out that UBS and Barclays de Zoete Wedd, advisers to UniChem, had been helping to maintain the bidder's share price yesterday. The strength of the shares increased the value of the UniChem bid and allowed it to bid above 497p for Lloyds shares at one stage, while still remaining within takeover rules. If that prop is removed, the bid's value could fall back with it, observers suggested.

Mike Ward at NatWest Markets said: "It looks fairly evenly balanced, but what will be crucial over the next few days is what happens to that UniChem share price. If it drifts lower, it will be difficult for the Lloyds board to recommend the UniChem offer.